Template:ISDA transaction and collateral flows: Difference between revisions
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The strict sequence of these payments ought to be that the {{isdaprov|Transaction}} termination payment goes first, and the collateral return follows, since it can only really be calculated and called once the termination payment has been made. | The strict sequence of these payments ought to be that the {{isdaprov|Transaction}} termination payment goes first, and the collateral return follows, since it can only really be calculated and called once the termination payment has been made. | ||
I know what you’re thinking. Hang on! that means the termination payer pays | I know what you’re thinking. ''Hang on! that means the termination payer pays knowing this will increase its {{isdaprov|Exposure}} for the couple of days it will take for that collateral [[Return Amount (VM) - CSA Provision|return]] to find its way back. That’s '''stupid'''!'' What with the regulators’ obsession minimise systemic counterparty credit risk, wouldn’t it be better to apply some kind of [[Netting of Payments - ISDA Provision|settlement netting]] in anticipation, to keep the credit exposure down? | ||
Now, dear reader, have you learned nothing? Of course not. Now there is a burgeoning DTCC product designed to do that — it is in its infancy — but the theory of the ISDA and CSA settlement flows puts egg before chicken and, at the moment, {{isdaprov|Transaction}} flows and [[collateral]] flows tend to be handled by different operational parts of an institution, and their systems don’t talk. | Now, dear reader, have you learned nothing? Of course not. Now there is a burgeoning DTCC product designed to do that — it is in its infancy — but the theory of the ISDA and CSA settlement flows puts egg before chicken and, at the moment, {{isdaprov|Transaction}} flows and [[collateral]] flows tend to be handled by different operational parts of an institution, and their systems don’t talk. | ||
Anyway, currently, the payer of a terminating transaction has its heart in its mouth for a day or so. <br> | Anyway, currently, the payer of a terminating transaction has its heart in its mouth for a day or so. <br> |